What Are Points On a Hard Money Loan?
Using hard money to fund an investment property can be quick and convenient for investors who don’t qualify for traditional financing. However, they can cost more when it comes to interest rates and fees. As such, it’s important to know exactly what you need to pay for while getting a hard money loan. Today, we’ll go over points on a hard money loan, what they mean, and how much most lenders typically charge. Read along to learn more!
Contents of This Article:
- Steps and Requirements for Hard Money Loans
- What Are Points on a Hard Money Loan?
- Different Types of Points on a Hard Money Loan
- Find the Right Lender for Your Investment Today
Steps and Requirements for Hard Money Loans
If you’re looking to get a hard money loan, it’s important to know the steps and requirements to get one. For instance, start by researching reputable hard money lenders in Baltimore. Before working with them, you’ll want to find their terms and interest rates and learn more about their reputation.
Once you’ve found a lender that will work well with your investment plan, you’ll want to start by filling out an application detailing your loan proposal. If they decide to proceed with your loan proposal, they’ll tell you what documentation you’ll need to get started. Typically, you’ll need to provide several documents that explain your credit history, proof of income, and details about the property.
Next, most lenders will want to conduct an appraisal of the property to determine its value. Additionally, some lenders require that you get insurance if you plan on renovating a property. If your loan is approved, all you have to do is carefully review and sign the loan documents. Then, the closing process will finalize the deal, and funds will be disbursed.
What Are Points on a Hard Money Loan?
Although the process of getting a hard money loan is typically seamless and quick, it’s important to know what types of fees you’re getting yourself into. For instance, most lenders require you to pay an application fee, a significant down payment, closing costs, and origination points. Not to mention, you’ll be paying a higher interest rate than a typical mortgage loan.
So, what are points on a hard money loan? Points is essentially just another word for fees. In other words, points on a hard money loan are upfront fees charged by the lender for providing the loan. Generally, points are equal to one percentage point of the loan and can range from 2% to 5% of the total loan amount.
For instance, if your lender charges you 3 points for a $200,000 loan, your origination fee would be $6,000 (3% of $200,000). It’s crucial for borrowers to understand and calculate points on a hard money loan, as they significantly contribute to the overall cost of borrowing.
The number of points you pay on a hard money loan depends on several factors. For instance, it can vary depending on the lender’s policies, the perceived risk of the loan, and specific terms outlined in the agreement. As such, borrowers should thoroughly review and negotiate terms whenever possible to ensure a fair deal for both parties.
Different Types of Points on a Hard Money Loan
When you hear the word “points” associated with a hard money loan, it could mean two different things. For instance, there are origination points, as discussed above, but there are also something called discount points.
Origination points are charged to cover the administrative costs of processing the loan. These upfront charges, ranging from 2% to 5% of the total loan amount, compensate the lender for facilitating the loan.
However, in some cases, you may also encounter discount points. Unlike origination points, discount points can be paid upfront to lower the interest rate on the loan. Each discount point generally shaves off a fraction of the interest rate, offering potential long-term savings. That said, most lenders put a limit on the number of points you can buy.
Although buying discount points may sound enticing, it’s important to assess whether or not it aligns with your financial goals. Essentially, it’s a trade-off between upfront costs and future savings.
Additionally, whether origination points or discount points, it’s important to realize that these fees are typically negotiable. So, you’ll want to engage in open communication with your lender to see if it’s possible to make some adjustments to their point structures. That way, you might just end up with a more favorable loan agreement.
Find the Right Lender for Your Investment Today
Are you looking to get funded for your next real estate investment? If so, you’ll want to understand and calculate points on a hard money loan. After all, the more you know before going into a loan agreement, the better you can plan and account for certain fees and costs.
If you’re looking for a lender in Maryland for your next investment property, look no further than Maryland Hard Money Lenders. Our team of experienced lenders can help you get the funds you need quickly and efficiently. Check out our initial loan application, or contact us today to learn more!